Window on Eurasia

Moscow Urged to Use Tax Code, Zoning Laws to Boost Birthrate

Paul Goble

Vienna, June 28, 2006 – The Russian government will be more successful in boosting the country’s birthrate, especially in the urban middle class, by giving tax breaks to businesses that employ women with two or more children and by prohibiting the construction of small apartments
than by offering the kind of payments President Vladimir Putin has
announced, according to a Moscow analyst.

Up to now, Aleksandr Yakuba writes in an analysis posted online yesterday, President Vladimir Putin and the Russian authorities have sought to boost the birthrate by offering women who have a second child a one-time cash payment of 250,000 rubles (10,000 U.S. dollars)
[http://www.russ.ru/comments/121901968?mode=print].

For women living in poverty or in rural areas, that may very well prove
to be “an offer they can’t refuse,” Yakuba says, but it will not
boost the country’s birthrate very much because most of these women
already have at least two children. But for middle class women living
in the cities, the government’s offer, as polls show, will do little.

Many women in the latter category have careers and see children as an
obstacle to their advancement, Yakuba continues, and for them even
250,000 rubles, as large a sum as that may be, is not equal to the
opportunity cost of staying at home or going part-time for a portion of
their working life.

Consequently, if the government really wants to increase the birthrate,
it must do more. And Yakuba suggests two strategies, one based on changing the tax code to make it more advantageous for employers to hire women with two or more children and another to block the construction of any more extremely small apartments.

Some have suggested large deductions for each child, but that will do
little to promote the birthrate if having additional children makes it
more difficult for women to remain competitive in the workplace. And
thus, Yakuba says, the state should also reduce the taxes employers have to pay if they hire women with two or more children.

That would make such women more attractive as candidates for employment
and reassure women who did have more children – and polls show that a
significant fraction of women would have more children if they had adequate incomes – that such women would not suffer in the workplace
as a result.

This use of the tax code, “in contrast to the use of a system of subsidies and one-time payments, would “stimulate the birth of children among the middle class” and in that respect contribute to
what Yakuba says would be an increase in “the ‘quality of the population.’”

At the same time, Yakuba suggests that the Russian government should employ zoning regulations to increase the average size of apartments, something that all surveys suggest would likely contribute to an increase in the number of children Russian couples would be prepared to have.

Fifty-four percent of the population of the country lives in apartments
of no more than two rooms, and another 32.6 percent live in three-room
residences. Those who live in one room apartments have no space for
children. Those with two room can accommodate two but only if both
children are of the same sex.

“Under these conditions,” Yakuba continues, “one ought not to
expect that people will give birth to more children with any enthusiasm.”

The only “way out” of this situation, he argues, is to prohibit
construction of apartments smaller than 60 square meters. Some might
think that would lead to an impossible increase in the price of
housing, but, he says, “this is not so.”

On the one hand, he argues, if price were the only consideration, then
the government should build baracks. Prices would be low and “all
problems would be resolved.” But Russians like other people have
become accustomed to higher standards, and these should be raised
again.

Indeed, in the future, Yakuba suggests, Russians ought to come to the
point at which they will view a one-room apartment much as they now
view a barracks.

And on the other hand, the Moscow analyst suggests, the price of
apartments now is set not so much by the cost of labor and materials needed to make them but rather by the laws of supply and demand. Under conditions of the market, prices would not go up astronomically.

What makes Yakuba’s argument intriguing is that it reflects an
approach often found in Western countries but rarely encountered among
Russian politicians: how to use the tax code and zoning regulations for
broader public purposes – in this case, the solution of the Russian
Federation’s demographic problems.